Rafshoon Replies on Campaign

The lawyer for White House adviser Gerald Rafshoon has released a detailed study intended to show prosecutors and the public that Rafshoon's Atlanta advertising agency was "ethical and proper" in its handling of the 1976 Carter campaign.

The study is essentially Rafshoon's formal response to a critical question raised about Carter campaign financing: How the agency was able to buy hundreds of thousands of dollars worth of media time and extend credit to the campaign without outside help when the campaign treasury was hard-pressed for cash in 1976.

According to figures and an analysis prepared by Rafshoon lawyer William Stack, it was possible for the agency to obtain the advance "cash-on-the-barrelhead" required for broadcast advertising by simply staggering and deferring other campaign related payments where immediate cash was not required.During the month of April 1976, for example, Rafshoon came up with badly needed money for Carter campaign advertising for the crucial Pennsylvania primary in part by deferring for 30 days payment of $169,449 owed to agency suppliers - companies that supplied brochures, bumper stickers and other campaign paraphernalia - and by temporarily forgoing the 15 percent commission paid by the campaign.

The agency was able to pay the suppliers later, after more campaign money came in, according to the figures prepared by Stack, and by the end of the campaign there were no significant outstanding debts.

Under this system, the Stack analysis states, at no time was there insufficient money to pay the television and radio stations the amounts due under Carter campaign contracts.

Thus, no outside help was necessary, Stack said in his report, which was sent to Justice Department special counsel Paul J. Curran and later released by Stack to reporters.

Curran is investigating suggestions, raised primarily in newspapers, that money lent by Bert Lance's National Bank of Georgia to the Carter family peanut business may have found its way illegally into the Carter campaign chest.

Attention has been focused on the Rafshoon agency as a possible recipient of this money because the Carter campaign made heavy advertising expenditures during crucial primaries at a time when other candidates had run out of money.

The Stack report attempts to explain how the Carter campaign did it.Stack allowed reporters to inspect backup figures accompanying the analysis but would not release them for prolonged examination. Curran, however, said he has been supplied with all the records of Rafshoon Agency financial transactions during the campaign period.

The figures shown reporters were not as revealing as they might have been because they were not broken down to show the exact amount of disposable cash in the Rafshoon agency on any particular day. Instead, Stack used cumulative figures.

Those figures show that the highest amount of campaign indebtedness to the Rafshoon Agency - $671,000 - came on May 31, 1976, at the peak of the presidential primary season.

According to Stack's analysis, a large portion of that amount - $242,193 - consisted of allocations for media buying that at that point had not really been spent, thus reducing the real debt to about $429,000. In the following three days, $225,000 was received from the campaign to nail down the media purchase contracts.

In order to free up that campaign money for media buying, the agency obtained $194,000 in credit from its suppliers during the month of May, according to the figures. Such an extension - through deferral of payments - was not unusual, according to the Stack report.

In addition, the agency continued applying its own fees and commissions from campaign work - roughly 15 percent - to media purchases. By the end of May, a total of $430,671 in fees and commissions had been diverted for that purpose, according to the figures.

This "was a substantial factor in the agency's capacity to extend credit to" the campaign committee, the report said.

In May 1976, federal matching fund payments to presidential candidates began flowing again after a three month delay caused by a Supreme Court decision nullifying the campaign financing act.

The Carter campagn was then able to increase the supply of cash of the agency so that by the end of August, only $18,000 in credit was still outstanding, according to the report.

"My examination confirms that [the Rafshoon Agency] did not borrow any money for direct or indirect use" in the Carter campaign, Stack wrote.

Federal election law allows the extension of credit by business or bank to a campaign if it is done "in the ordinary course of business" - a hazy term that has never been fully defined.

Stack, in his report to Curran, stated that it was not unusual for the Rafshoon Agency to extend credit to private clients or campaigns. The agency "extended credit to the two prior Jimmy Carter gubernatorial campaigns," Stack wrote, and has "extended proportionately greater credit to nonpoltical campaign clients." CAPTION: Picture, GERALD RAFSHOON . . . a detailed response to critics

Fred Barbash, the editor of Morning Mix, is a former National editor and London bureau chief for The Washington Post. He has also been an editor at Politico and Reuters, and was the managing editor of CQ Weekly magazine.